The Reserve Bank of India (RBI) has released new draft guidelines to regulate gold loans amid a sharp rise in gold prices and growing non-performing assets (NPAs) in this segment. The central bank aims to improve transparency, reduce risks, and protect borrowers, especially those from economically vulnerable groups.
However, following appeals from states like Tamil Nadu, the Finance Ministry has proposed exemptions for gold loans below ₹2 lakh, and suggested that the new rules be implemented starting January 1, 2026 to allow smoother adoption.
Why Is the RBI Updating Gold Loan Regulations?
The RBI’s move comes in response to the rising demand for gold loans, driven by skyrocketing gold prices — with 24-carat gold touching ₹95,760 per 10 grams, and 22-carat gold at ₹87,780. Gold loans are often used by individuals needing quick cash for emergencies, making them a vital tool for the financially underserved.
However, the rising NPAs on gold loans have raised concerns:
- Commercial banks reported gold loan NPAs of ₹2,040 crore as of December 2024 (up from ₹1,404 crore a year ago).
- NBFCs (non-banking financial companies) reported NPAs of ₹4,784 crore, up from ₹3,904 crore the previous year.
While gold loans are backed by physical collateral, poor valuation practices, over-lending, or a drop in gold prices can result in significant losses for lenders — and emotional or financial setbacks for borrowers.
What Are the RBI’s New Gold Loan Rules?
Here’s a detailed look at the proposed guidelines:
🔶 1. Eligible Collateral
Loans can only be granted against:
- Gold jewellery
- Gold coins issued by banks
Not allowed: Loans against gold bars, bullion, or ingots (primary gold) will be prohibited to reduce risks and prevent money laundering.
🔶 2. Loan-to-Value (LTV) Ratio
- The maximum LTV ratio is capped at 75% for consumption-based gold loans.
- This ensures that the loan amount does not exceed 75% of the gold’s assessed value, providing a safety buffer for both lender and borrower.
🔶 3. Standardised Gold Valuation
- Gold must be assessed by qualified assayers with a clean track record.
- Borrowers must be physically present during the gold testing process.
- Gold valuation should be based on:
- The lower of the 30-day average price or the previous day’s price of 22-carat gold, as per:
- India Bullion and Jewellers Association Ltd.
- SEBI-regulated commodity exchanges
- The lower of the 30-day average price or the previous day’s price of 22-carat gold, as per:
- For gold less than 22 carats, value must be adjusted accordingly.
- Silver collateral will be valued at 999 purity market rates.
🔶 4. Ownership Verification
- Lenders must confirm authentic ownership of the pledged gold.
- If the original purchase bill is unavailable, a self-declaration is mandatory.
🔶 5. Purpose-Based Loan Classification
- Consumption Loans: Loans for immediate personal needs like healthcare, education, etc.
- Bullet repayment loans (full payment at maturity) must not exceed 12 months.
- Above a lender-determined threshold, usage monitoring is required.
- Income-Generating Loans: Loans used to fund economic activities.
- Must be evaluated based on cash flow potential, not just gold value.
- Cannot be clubbed with consumption loans on the same gold collateral.
🔶 6. Quantity Limits on Gold/Silver Collateral
- Maximum gold pledge: 1 kg per borrower
- Gold coins: Up to 50 grams
- Silver ornaments: Up to 1 kg
- Silver coins: Up to 500 grams
These limits are designed to control risk concentration and reduce misuse or potential money laundering.
🔶 7. No Re-pledging of Collateral
Borrowers cannot pledge the same gold again until the entire previous loan (including principal, interest, and arrears) is fully repaid. This prevents over-leveraging and ensures proper asset control.
Why the Government Wants Exemptions for Small Borrowers
Responding to concerns from states and the public, the Finance Ministry has proposed:
- Exempting loans under ₹2 lakh from these stricter norms
- Delaying implementation to January 1, 2026
Tamil Nadu Chief Minister MK Stalin has argued that the rules could limit access to institutional credit for the poor and middle-class families, who rely on gold loans in emergencies. The ministry’s recommendations are aimed at balancing financial regulation with social inclusivity.
Conclusion
The RBI’s new draft guidelines for gold loans are a crucial step to reduce defaults, ensure proper valuation, and protect both lenders and borrowers. However, the proposed exemptions for smaller loans reflect the government’s commitment to financial inclusion.
If you’re planning to take a gold loan, it’s essential to stay updated on these changes to make informed decisions. As implementation draws closer, both borrowers and lenders should prepare to align with the updated norms.